Fitch Affirms Zenith's IFS & Debt Ratings; Outlook Stable

Business Wire, Feb 25, 2008

CHICAGO -- Fitch Ratings has affirmed Zenith's ratings as follows:

Zenith National Insurance Corp.'s (Zenith National) insurance subsidiaries:

Zenith Insurance Company (Zenith Insurance)

--Insurer Financial Strength (IFS) rating 'A'.

ZNAT Insurance Company

--IFS 'A'.

Zenith National

--Issuer Default Rating (IDR) 'BBB ';

--$1.2 million 5.75% convertible senior notes due March 30, 2023 at 'BBB'.

Zenith National Insurance Capital Trust I

--$58.5 million 8.55% trust preferred securities due Aug. 1, 2028 at 'BBB-'.

The Rating Outlook is Stable.

Zenith's ratings reflect strong underwriting results, solid capitalization, and a strong balance sheet. Offsetting factors include Zenith's geographic and product concentration along with an intensely competitive market.

Zenith continues to report outstanding workers' compensation underwriting results with a 67.0% combined ratio in 2007 compared to 66.3% in 2006. This compares favorably to workers' compensation industry combined ratios estimated at approximately 98.5% and 95.0% in 2007 and 2006 respectively. Zenith's results include favorable reserve development on prior accident years amounting to $113 million and $161 million in 2007 and 2006 respectively, which was driven by lower long-term claims frequency trends and favorable short-term deflationary trends in paid losses for 2003-2005 accident years.

Fitch views favorably Zenith's competitive strategy, which focuses solely on profitability as opposed to growth. Zenith does not set growth targets and is not a low-cost provider, allowing premium volume to fluctuate based on market conditions. Zenith has endured 20.4% and 17.5% declines in workers' compensation net premiums written in 2007 and 2006 respectively. Fitch believes Zenith has sufficient liquidity to pay claims and is well-positioned to benefit when prices harden.

Fitch considers Zenith's capital position to be strong for its rating class, evidenced by its 'AAA' Prism score and low operating leverage (net premiums written to surplus of 0.7 times [x]). Zenith also maintains a solid balance sheet with extremely low leverage (1.3% adjusted debt to equity) and a conservative and liquid investment portfolio.

Zenith's mono-line business and geographic concentration in California and Florida present additional risks. However, both states are performing well with historically low loss ratios. Additionally, Fitch views Zenith's very strong capital position as a mitigant to its concentration risk.

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